Automated invoice processing: Why & how to get started

Paying invoices accurately and on time is a big enough challenge when you only have a few vendors to manage. The task becomes even more daunting as your business grows, especially if you’re trying to manage a high volume of vendors manually. To overcome these practical difficulties, companies worldwide are increasingly transitioning from manual to automated invoice processing. According to estimates from Gartner, business expenditure on accounts payable automation and supplier electronic invoicing software markets is expected to reach nearly $1.75 billion by 2026, rising from around $925 million in 2021. No surprise, as this intervention unlocks an excellent way to save time, reduce errors, improve vendor relationships, and enhance overall cash flow management. 

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This article explores automated invoice processing and how it improves traditional workflows. We also share steps you can follow to implement automated invoice processing in your organization.

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What is automated invoice processing?

Automated invoice processing involves using software to streamline and introduce efficiency into traditional accounts payable invoice processing workflows.

Automated invoice processing has several benefits for the business:

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• Time-saving by eliminating lengthy, manual workflows related to invoice processing and expediting workflows.
• Slashing costs by reducing the administrative burden of invoice processing. Data suggests that AP departments spend nearly 22% of their time handling supplier inquiries, which keeps them from focusing on more critical tasks.
• Increasing savings by paying bills on time to receive vendor early-bird discounts.
• Enhancing accuracy by avoiding mistakes like wrong calculations, overpayments, late fees, or missed discounts.
• Strengthening vendor relationships by disbursing timely payments.
• Improving cash flow and financial planning by timely spend tracking.
• Simplifying compliance and record-keeping by automating the maintenance of clear account payable audit trails.

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Let’s see how automated invoice processing makes this possible.

How do automated invoices streamline traditional invoice processing workflows?

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Traditional invoice processing workflows are cumbersome and typically involve the following steps: 

• Invoice submission: Vendor or supplier submits invoice.
• Three-way matching: The accounting team verifies the product or service delivery based on the invoice details and Goods Received Note (GRN). GRN reflects information on the good or service received and the billing amount during delivery. The accounting team also cross-checks the invoice amount with the purchase order. If there is a discrepancy, it is routed back to the vendor for correction.
• Approvals: If there’s no discrepancy, the team routes the invoice for necessary internal approvals before payment. This depends on company policies. For instance, in some companies, additional approval controls exist for invoices exceeding a certain amount. 
• Processing: Once the invoice is approved, it’s mapped to the account payables team for processing. This timeline depends on the negotiated payment terms, which are usually mentioned in the PO or vendor contract. The accounting team processes payment after reconciling details such as the amount payable, the beneficiary, the type of payment, and so on.
• Data capture: Upon making payment, they capture this data and archive it in the company’s ledgers.

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Although fairly straightforward, this approach often becomes cumbersome, error-prone, and lengthy. For instance, several people need to review and approve each invoice. If one person delays, the entire workflow gets delayed. Sometimes, AP professionals miss an email or approve an invoice that doesn’t match the original purchase order. Such occurrences lead to discrepancies in spending tracking, expense management, timely vendor reimbursements, and more. 

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Introducing invoice processing automation into the accounts payable workflows eliminates these concerns. The software minimizes the need for human intervention in fundamental account processing steps. It performs functions such as auto-extracting invoice data for review, auto-approving based on preset rules, or auto-routing for necessary approvals and following up, processing payments, and also 

reconciling this data into accounting systems. Let’s see how you can put it into practice in your organization.

How to implement automated invoice processing? 

Step 1: Assess your needs 

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Start by closely examining your current invoice processing workflow to identify the key gaps where you must intervene. 

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Step 2: Look for the best invoice processing automation software for your needs.

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Based on the invoice-processing workflow gaps you identify, shortlist the best invoice-processing automation software for your business. 

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Some essential features to look out for in invoice processing automation software include:

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• Multi-channel invoice support: Look for software that supports multiple formats for receiving invoices, right from PDF and e-invoices to scanned copies and paper-based invoices.
  
  
• Auto-data capture: Ensure the software supports automatically extracting critical details from invoices and eliminates the need for manual data entry into the system. Technologies such as optical character recognition (OCR) and AI can make this possible.
  
  
• Controls for error management: Make sure the software has built-in controls to mitigate the risk of fraud and payment errors. For instance, check if it can identify and flag duplicate invoices.
  
  
• Multi-currency payment: Review whether you can pay out your vendors for approved invoices in different currencies and get international tax code support.

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• Customization: Assess whether the invoice automation software is customizable according to your unique and varying business requirements. For instance, does it incorporate approval workflows based on your company policies, can you set up recurring payment workflows, and so on?

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• KPI/SLA management: Screen the software for capabilities to track and manage key performance indicators and SLAs associated with your invoicing process. These insights will be necessary for you to track invoice statuses and ensure timely payment. At the same time, this will help you monitor expenses to accurately forecast cash flows.

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• Integrations: Last but not least, check whether the invoice automation software can integrate with your accounting and ERP systems. This will help you auto-sync bill pay transactions and pull in your amortization schedules to accelerate your accounts payable workflow.

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In addition to all these features, make sure the invoice processing automation software is easy to use to ensure adoption and has support available to help your team whenever they have queries.

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Step 3: Plan the implementation

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Once you select your invoice processing automation software, develop a clear implementation plan with a clearly defined timeline for the transition. Make sure you train your staff thoroughly on its usage. 

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Step 4: Migrate your data 

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Transfer historical data systematically and accurately into your new invoice processing automation system. Make sure you clean and organize this data to avoid issues during migration. Also, integrate it with your accounting systems to avoid duplication of effort.

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Step 5: Test the system before full-scale deployment

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Once data migration is complete, run tests to ensure the system is working correctly. Identifying and addressing any issues before you go live with a change is best.

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Step 6: Continuously monitor and optimize

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Once you implement the system, your role doesn’t end. Make sure you continuously monitor its performance. Reach out to your teams and suppliers to gather feedback. Based on what you learn, make necessary adjustments for optimal results.

Want to implement an effortless accounts payable workflow?

Trusting a partner like Ramp can save your team’s time & effort by providing forward-thinking automation at every step of the invoice processing workflow. It provides everything you need to control spend and optimize finance operations, all on a single platform. 

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Companies implementing Ramp save an average of 5%.

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Get visibility and control over your business spending now and as it grows. Watch the demo to see how Ramp works.